What’s the Difference Between a Good and Service?

Goods and services are often put together in the same sentence, but they are quite different. In the past, we covered what GST (Goods and Services Tax) is, but we are yet to cover the difference between a good and service. In this article, we will cover their difference.

What is a Good?

A good is a physical product that is sold or transferred between a seller and buyer. However, it cannot be any physical thing, such as a common stone or tree branch; it must be a product of value that requires payment or effort to acquire. A good will last as long as it remains intact and/or fresh. However, for non-perishable goods, they can become goods again, as long as they are repaired or reformed.

Example A

Bill sells an axe to Sarah. Bill wants $50 for the axe, so he can buy a soccer ball. Sarah wants the axe, so she can chop down trees for firewood. The axe is a physical product that has value for both parties. Bill will receive money, while Sarah will be able to produce wood for the fire. It ceases to be a product of value, once the axe breaks. However, this does not mean it cannot later be reformed to become a workable axe again.

Example B

Matt sells a kilogram of apples to Laura. Matt gets $5 for the apples. Laura gets to enjoy the crispy taste of the apple that she has been craving. Therefore the apple provides value to both Matt through money and Laura through enjoyment. The apple ceases to be a good, once it is eaten or once it loses its freshness.  

What is a Service?

Unlike a good, a service is non-physical. It exists only for a specific purpose and once this purpose has been fulfilled, then it ceases to exist. A service can be a skill that one person has and sells to another. It can also be in the form of a right to use a good. However, use does not mean ownership.

For example, John decides to take the train to work. The train network is a service provided by the government, therefore the government owns the trains on which John and other passengers are transported. John buys a ticket, which gives him the right to use the train from point A to point B. When John buys his ticket, he is not buying the train, which is the good being used to provide the service, rather he is buying the right to use the train for a set period of time.

Example A

Margaret wants a degree in medicine. She pays Macquarie University on a semester-by-semester basis to study medicine. Margaret is paying for the teacher’s knowledge and skill in medicine, which will educate her and later qualify her to practice medicine. There is no exchange of physical goods. Instead, Margaret is paying for another’s skills and knowledge.

Example B

Jessica decides to change her internet plan. She settles on FastInternet. Jessica pays $100 a year for unlimited data. FastInternet owns the infrastructure, but Jessica gets to enjoy what the infrastructure can produce. However, the infrastructure remains with FastInternet. Once Jessica’s contract expires with FastInternet, the service no longer exists, even though the provider remains.

Can something be both a good and service at the same time?

There are many instances when something sold is both a good and service. This happens when a service is tied to the good so that the consumer cannot buy one without the other. A common example of this is when mobile phone service providers offer the phone with the plan. For example, the three major mobile service providers in Australia: Vodafone, Optus and Telstra all offer smartphones with their data, text and call plans. You cannot purchase the mobile without also going on the plan.

This article provides a general overview of what a good or service is and how they differ. However, to get a greater understanding, you should seek legal advice.

Don’t know where to start? Contact us on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest lawyer marketplace.

 

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